A 2012 report by the Economist’s magazinesIntelligence Unit on the cost of living in capital cities around the world found Panama City to be the fifth least expensive city for foreigners to live in the world. Panama City is cheaper than any capital city in Latin American region. That is for Panama City- many places outside Panama City are even cheaper.
For locals, Panama is not as cheap- this is a rating for foreigners who live abroad and the basics they need.
But for retirees it is even cheaper- Panama has the best Retired Persons discount program in the world including 25% discount on airfare, restaurants and hotels. See Panamainfo.com’s article :The Advantages of Living in Panama” for details.